How to make $645K from video commerce tech in 24 mos by launching 2 videos a month

It has been over a month since Part 2 in the ‘ROI of Video Commerce Platforms’ series, so my apologies up front for the wait. It took longer than I thought to gather the data required for this post. Now, I have it, and it’s time to share some revenue calculations and an example for how video commerce technology generates revenue.

Before we get too far into it, two disclaimers are warranted: First, I’m one of the principals of Liveclicker, a video commerce solutions provider. As such, I’ve populated some example metrics based on aggregated statistics across videos deployed by Liveclicker’s clients in an effort to provide benchmarks as you assemble your own ROI analysis. Second disclaimer – no ROI model is perfect. ROI models attempt to predict the future based on a combination of data and assumptions. Assumptions can change for a myriad of reasons or prove untrue. Take what I have provided here as a directional guide intended for a generic retail audience, not Holy Gospel or totally reflective of your business ;-)

OK, enough on the disclaimers… Let’s get started!

First, you will need to gather some information to plug into the ROI model. The more of the below information you can gather, the better, but if you don’t have access to some metrics, don’t fret. It is generally ‘OK’ to take an educated guess on some things as long as you can explain the rationale behind your thinking and clearly communicate to others internally where you’re plugging in real numbers, and where you’re guesstimating.

Here are numbers you’ll need as a baseline to assist you on the revenue side of the model:

Your site’s Average Order Value (AOV) – for all orders, sitewide

Your site’s Average Conversion Rate (CVR) – the % of visitors to your site that complete a purchase on your site (this could either be same session purchases, or during the period of time since the initial session recorded your organization has defined as qualifying for the CVR metric)

Number of Videos Available to Deploy on Day 1 with a video commerce solution

Number of Videos Available to Deploy by the 24th month with a video commerce solution (the ROI analysis we’re generating breaks down anticipated revenues v. costs over a two year period – it is OK to estimate)

The information below is also required to help identify specific video contributions on your site and across some of the most commonly ‘video enabled’ marketing channels. Your organization may not choose to leverage video in all these ways. That is fine – any areas you don’t believe your organization will leverage, just leave them blank.

For Video SEO:

The number of visits per month per video you expect to receive for each video from organic search, as a result of either traffic coming from universal search (video thumbnails displaying among organic search results – prerequisite is to submit a properly formatted Video Sitemap) or text search results as a result of publishing video. As a reference point, Liveclicker’s clients average ~20 visits per month per video from organic search (taken from the result set that’s measurable).

For Interactive/Facebook Video:

The number of unique visitors to your organization’s Facebook Page each month

The % of Facebook Page Visitors playing video.

The % of Facebook Page Visitors clicking through interactive video to your web site (for reference, Liveclicker clients average 3.0% of plays on Facebook resulting in a clickthrough – pretty amazing when you benchmark that up against the average CTR on display ads)

% of your video library published to your website that are enabled for sharing (includes share option)

Share rate for videos on your web site – assumes videos on your site are enabled for sharing. For reference, Liveclicker clients average a 2.1% share rate for all videos that display a “share” button in the player throughout the duration of the video playback.

Average number of incremental plays on Facebook for each organically shared video (videos that are shared by your shoppers from your web site, not posted by your company to your company’s Facebook Page).

The % of Youtube video viewers clicking through videos (via click-to-buy/promoted videos) to your web site

The % of Twitter followers viewing your videos, and % clicking through to your web site

For Video in Email:

How often you envision sending video in email (once a month, once a quarter, once a year, etc)

The size of your company’s email list (or, more specifically, the size of the segment you’d imagine sending video email to. (for reference, most Liveclicker clients today send video email in the first campaign to 50% of the list in a promotional campaign – A/B split – to measure performance, and thereafter average sending one video email campaign per quarter).

Average clickthrough rate (CTR) of an email audience likely to be tested/used with video when clicking to a landing page (for reference, a generally accepted average email CTR for retail promotion campaigns would be ~7.5% CTR).

Incremental CTR from video in email compared to no video in email (two reference points: former Forrester Research analyst David Daniels indicated CTR for video email campaigns was “up to 2X – 3X” higher. In my anecdotal observation across the Liveclicker client base, CTR tends to be around 5% – 15% higher when video is used in email as opposed to only on the landing page and influenced greatly by the marketer’s adherence to best practices).

For Site Video Optimization

Average monthly unique visits to each page featuring both video and add-to-cart option (for most retailers: product pages)

% total visitors on these pages that play a video in the same session (for reference, Liveclicker client average is ~12.5%. Placement of the video on pages can have a large impact on this metric, refer to the whitepaper “Creating E-Commerce Videos that Sell”)

% growth in pageviews featuring video over 24 month period (Liveclicker has no formal data – due to the newness of many clients – anecdotally the rate appears to be around 100% – 150% growth, across e-commerce verticals, for pages w/video)

% traffic on site not currently reached by video due to lack of HTML5 video support (for reference, most retailers would be around 2.5% of the total audience as of May 2011). Many analysts expect this number to rise rapidly.

Production Improvement from Video Conversion/Revenue/Engagement Analytics

Expected % improvement from use of video commerce analytics (difficult to measure precisely – an informal/not statistically valid survey of Liveclicker clients showed many clients thought the revenue improvement from use of analytics was around 25%). Your success with video commerce analytics will depend largely upon your organization’s commitment to pay attention to the video analytics and implement changes to your video production strategy suggested by analytical performance data.

SAMPLE RETAILER VIDEO COMMERCE REVENUE:

Assume the following for retailer XYZ:

AOV of $100

CVR of 5%

25 videos available to deploy on day 1

50 videos available to deploy at the end of 2 years (that’s 12.5 videos added per year)

(Video SEO – revenue)

20 incremental organic visits/mo from video SEO (note – in this model, it is assumed that all video traffic is incremental, and there is no cannibalization of other organic queries as a result of listing video in search results)

Month 24 calculation is as follows: 50 videos * 20 incremental visits per month per video * 5.0% CVR * $100 AOV = $5,000/mo in revenue (note: this model assumes videos will be produced at a steady pace, equal from one month to the next)

This example assumes 100% of the videos are product videos, not branding/awareness/lifestyle/entertainment videos – just to keep the calculations easier. Awareness videos tend to drive lower incremental conversion than product videos. Liveclicker observes product videos, which are generally placed on product pages, result in an average incremental conversion lift of ~20%, compared to only ~5% incremental for non-product videos, which are typically higher in the funnel, for example on brand/cat/home pages. Also, entertainment/lifestyle videos may not feature content designed to drive purchase, which could also explain why CVR from these video viewers may be lower.

The example also assumes videos are only shared to Facebook (YouTube and Twitter would yield even more traffic)

Growth in visits proportional to the growth in video volume (in this example, we’re going from 25 videos in month 1 to 50 in month 24. I believe most organizations would consider a 2X increase in Facebook Page traffic to be conservative, but if you prefer to keep your growth rate on Facebook separate, that would be even more reliable).

3% of views resulting in a click (CTR) = 375 site visits/mo from Facebook Fan Page in month 1

3% of views resulting in a click (CTR) = 750 site visits/mo from Facebook Fan Page in month 24

100% of videos on the web site are sharing enabled (that’s 25 videos in month 1, 50 videos in month 24)

2.1% share rate (Liveclicker client average)

Each Facebook share results in 2 incremental plays (conservative – consider the average Facebook user that shares a video has over 200 friends – but also consider that most product videos are not ‘viral’ and will not result in many incremental shares past the first 1-few shares)

Now we need to determine how the incremental plays impact revenue compared to if those same visitors did not view video. Using the 20% higher conversion metric for video watchers v. non-watchers, we’d perform the following calculations:

Now we need to determine how the incremental mobile plays impact revenue compared to if those same mobile visitors did not view video. Using the 20% higher conversion metric for video watchers v. non-watchers, we’d perform the following calculations:

First we need to calculate the overall on-site video revenue from video over this time period. Keep in mind we are not taking this number into our final calculations; we are only interested in the incremental revenue made possible by a video commerce platform, not video itself.

Double that number to $31,250 for month 24 (due to number of videos doubling, all other multipliers remaining constant)

Straightlining out the revenue improvement over the course of 24 months from $15,625 in month 1 to $31,250 in month 24, we get $508,464 in incremental revenue from video

Then assuming a constant rate of increase of performance improvement per month, until 25% in month 24 (25% total improvement relative to baseline performance over a 24 month period), the incremental revenue from video commerce analytics is $80,184.

TOTAL PRODUCTION IMPROVEMENT FROM ANALYTICS REVENUE OF $80,184 OVER 24 MONTHS

Did you read this far? If so, now it’s time for a subtotal:

Video SEO revenue of $88,854

Interactive/Facebook video revenue of $64,270

Video in Email revenue of $280,000

Site Video Optimization revenue of $119,884

Mobile Video Revenue of $12,691

Production Improvement from Video Analytics of $80,184

Total 24 month revenue of $645,883 attributed to investment in video commerce technology.

The revenue in this example actually eclipses the revenue from video itself (not video technology), looking only at on-site deployment on product pages. That amount is $555,338 over 24 months. The amount of revenue from video would be much higher if viewed across channels.

So there you have it – an revenue calculation for video commerce technology. If you happen to be a fan of Excel, I also have a handy calculator I could share with you to automate the calculations so you can put one together for your own business. Just shoot me an email at justin [at] liveclicker [dot] com and I’d be happy to send it to you – or just submit an inquiry on the Liveclicker web site here.

Part 4, the next in the series, will provide the calculations and examples for the cost savings side

Part 5 adds sample cost information (the cost of your video commerce solutions vendor or in-house development) and plugs those costs into an example case showing the completed ROI analysis over a 24-month period.

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Justin Foster

Justin is Co-Founder and VP Market Development of RealTime Email at Liveclicker. Prior to Liveclicker, Justin led the services practice for WhatCounts, Inc., an email marketing services provider, where he was responsible for client strategy and deliverability. He also founded the Email Marketing Roundtable, an industry discussion forum that represents over 1,500 email marketers worldwide including the majority of the largest online retailers in North America.